Analysts described the probable sale as a 'unique opportunity' to buy a sizable Canadian lending institution
The Big Six banks would be the most likely parties to pursue a takeover of HSBC Holdings PLC's highly profitable Canadian operations.
However, not all of them have the same incentive to reach a deal, analysts said after the British financial services giant confirmed reports that it was considering a possible sale of the unit, reported the Financial Post.
“We are currently reviewing our strategic options with respect to our wholly owned subsidiary in Canada,” a spokesperson for the bank said in a statement. “Amongst the options being explored is a potential sale of HSBC Group’s 100 per cent equity stake in HSBC Bank Canada…. The review is at an early stage and no decisions have been made.”
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The Canadian unit has been the third-largest contributor to commercial banking profits globally, despite being a small portion of HSBC's overall business. According to Bloomberg News, the unit could be worth up to US$10 billion.
Analysts described the potential sale as a "rare opportunity" to buy a sizable Canadian lending institution. National Bank of Canada analyst Gabriel Dechaine noted that he anticipates every major bank to at least explore the possibility, though not all may be in a capital position to do so.
“Hard to see [the Bank of Montreal] and [Toronto-Dominion Bank] making a serious run, considering they are hoping to close large U.S. acquisitions later this year,” Dechaine said.
“[Royal Bank of Canada] seems the most obvious given its large excess capital position, and the potential size of HSBC Canada relative to its market capitalization is far from a ‘bet the farm’ situation.”
By purchasing First Horizon Corp. for a total of US$13.4 billion in cash, it would be enlarging its presence in the United States, TD announced in February.
In one of the biggest deals ever for a Canadian bank, BMO had previously announced late last year that it was buying Bank of the West for US$16.3 billion.
Read more: BMO expands US footprint with US$16bn Bank of the West deal
Dechaine argued that RBC's $12 billion in excess capital eclipses the roughly $2 billion that Bank of Nova Scotia, the Canadian Imperial Bank of Commerce, and National Bank each have on hand in an early-morning note to clients on October 4.
RBC, however, might have to jump through more regulatory hoops than other banks because of concerns about the state of the market.
Dechaine did not rule out the possibility of a foreign player vying for the assets, even though many have already reduced their investments in Canada, even though domestic banks would be seen as the frontrunners.
“We do not believe any European or U.S. banks would be interested, as these players have more of a track record of exiting Canada,” Dechaine wrote. “If anything, we could see a large Chinese bank expressing interest.”
A Chinese bank might have more of a "strategic appetite" and be less concerned about synergy costs, according to Dechaine. However, getting regulatory approvals might be difficult.
